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Disruptive innovation: The new normal in warehouse management

An Amazon employee picks a product in an automated warehouse. (Image: Amazon)

The phrase "disruptive innovation" was invented by Clayton M. Christensen, a professor at Harvard Business School. The term describes a new market and value network that eventually disrupts an existing market.

Not every revolutionary invention starts out by being disruptive. When the first automobiles were developed in the late 19th century, the vehicles were costly and temperamental, so their market was limited to the very wealthy. However, when Henry Ford started mass production of the Model T in 1908, this was a disruptive innovation because its low cost made cars available to the average consumer.

In this article, we will consider seven disruptive innovations that have the potential to cause significant alterations in the art of warehousing. We understand the risk of predicting the future, and some of these innovations may end up being less disruptive than they seem to be today.

1. Additive manufacturing

Also known as 3-D printing, the technology has been around for several years. A machine roughly similar to a photocopier uses plastic or powdered metal to build a three-dimensional copy of an existing item by repeatedly adding small amounts of material.

For most of its short life, additive manufacturing has been a demonstration or experiment. It has proven its ability to create reproductions of existing items. Only recently has the technology been suggested as a substitution for the procurement of conventional parts. At least one major logistics service provider has an experimental implementation of the technology within a distribution center.

Full implementation of additive manufacturing could have a drastic effect on warehousing. Imagine a distribution center for automobile parts, containing perhaps 20,000 different part numbers. If half of those parts could be reproduced with additive manufacturing, the size of the inventory in the warehouse should be dramatically reduced. When a client needs a particular part, it is literally made to order on the 3-D printer.

2. Crowdsourcing

This term was coined a decade ago. It refers to the process of obtaining services by soliciting contributions from a large number of people who are not traditional employees or suppliers. The "crowd" may consist of part-time workers, independent contractors or even volunteers.

Crowdsourcing can be used in a wide range of activities. In supply chain management, the best example is the cab services provided by Uber, Lyft and Sidecar.

The disruption begins when Amazon and others promise that they will use similar services for delivery of cargo. Sidecar's website already reveals a freight delivery operation. Disruption could be complete when a significant share of delivery services are handled by independent contractors similar to the crowdsourced cab services seen today.

The same concept is now used for the marketing of warehouse space. FLEXE is an Internet-based service that allows any warehouse operator with excess space to offer storage and handling services to any buyer who needs them. In effect, the concept allows every warehouse operator to become a logistics service provider. This disruptive innovation could reach its ultimate phase when a large percentage of warehousing services is offered by the crowd rather than the traditional public warehouse.

3. Internet of things

IoT is a network of physical objects or "things" embedded with electronics that enable these things to exchange data.

The earliest application was RFID (radio frequency identification), patented in 1983 and wildly promoted by a few chain retailers. The technology worked, but the promise that every box of cornflakes would contain an RFID tag has proved to be unrealistic. The best applications are used for the control of more costly items such as rental cars.

The research firm Gartner predicts that the number of wirelessly connected products will increase fourfold by the end of this decade. For warehouse operators, the security aspects of IoT could be useful. A recent article in The Economist describes Gooee, a lighting firm that gives its lamps the power to activate alarms in the event of a fire or a break in.

4. Merger mania

A certain amount of merger activity in the logistics service industry is normal and inevitable. The industry is fragmented, and a high percentage of firms in it are family-owned and family managed. When the family is not successful in succession planning, a merger is the usual next step.

However, the merger activity today is different. Brad Jacobs, CEO of XPO Logistics, acquired eight major companies in five years, in addition to 10 smaller ones.

"Transportation and logistics is the last big industry that has not yet been consolidated, but it should be, and it will be," Jacobs said in an interview.

This is the first time in years that anyone has talked about consolidation of the logistics industries. We have never seen mergers of this size executed so close together. Merger professionals frequently discuss the challenge of integration. The landscape is littered with merger transactions that failed to achieve the anticipated results because integration did not proceed smoothly.

If merger activity continues at the same rate seen in the last few years, the character of the logistics service business could be changed. Will future mergers stimulate a race for size and scale? Will some of them be Wall Street-driven? Will they reduce competition?

Though there are giant multinational companies in the logistics industry today, as a whole the business is still fragmented. Jacobs says it should be consolidated.

If the current state of fragmentation is so great that no single enterprise could influence the process of consolidation, then what if several giant logistic service providers all follow a strategy similar to that promised by Jacobs? Will this happen?

5. Teaching and training

The shortage of talent is a major concern in the logistics industries today. While the spotlight is on truck drivers, there is a similar scarcity in other occupations.

AWH is a software development company in Dublin Ohio. The company is constantly training a group of individuals to build a career in computer technology. The best candidates are individuals who have never tried to be programmers before.

Why couldn't the same methods be used to develop other logistics skills?

6. Robotics in the warehouse

The robot was first used by Czech playwright Karel Capek in 1921. Experimental robots were demonstrated in private industry in the 1930s.

In warehousing, one of the earliest applications of robotics was the development of automatic guided vehicles (AGVs) in the 1970s. These mobile robots move about the warehouse floor, guided by a variety of navigation systems. Application of AGVs has steadily increased in the past several decades.

The earliest use of robots in materials handling was execution of repetitive tasks such as building and stripping of palletized case goods. Robots have also been used for packaging at the shipping dock.

The move toward disruption may have begun when Amazon bought robotics manufacturer KIVA. As the applications have multiplied, the cost of robots has come down steadily. Disruptive innovation may reach its peak when robots begin to replace many people in order picking, receiving and other warehouse jobs.

7. Self-driving vehicles

Not surprisingly, the concept of automated vehicles began with off-the-road applications such as farm equipment and robotic lift trucks. In such cases, the risk of accidents is minimized. Self-driving motor trucks are legally deployed today in the state of Nevada. At least one major truck manufacturer, Freightliner, has made a major commitment to their development.

Another concept in advanced development is a "platooning" system that allows one or more driverless trucks to follow close behind a lead semi that has a driver. Volvo, Navistar and Freightliner have all made an investment in platooning technology.

Platooning could allow a train-like row of trucks to move down a highway, just a few feet apart. The lead driver will cause the driverless trucks to automatically brake and accelerate as a unit. Since autonomous self driving trucks may be delayed by safety concerns, the platoon concept is likely to be the first application of driverless freight vehicles. In addition to reducing the number of drivers, the platoon saves fuel by reducing air resistance for the following vehicles.

Final thoughts

Two decades after Christensen published his career making theory of disruptive innovation in Harvard Business Review, it was inevitable that the original idea would come under attack. Even the author points out that the term "disruption" has been used so much that its meaning is diluted.

In Christensen's narrative, the innovators are usually newcomers. Yet at least three established firms, Amazon, Apple and Google, have caused as much disruption as any company. While most of the disruptors we described are not in the logistics service business, quite a few notable ones are.

If the logistics service industries are radically changed in the next 5-10 years, which of the seven disruptors described here seems most likely to alter the face of warehousing? Your opinion is welcomed.

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About the Author

Ken Ackerman has been active in logistics and warehousing management for his entire career. He is editor and publisher of Warehousing Forum, a monthly subscription newsletter. Since 2007, he has also been a group chair for Vistage International, the world’s leading chief executive organization. Before entering the consulting field, he was chief executive of Distribution Centers, Inc., a public warehousing company that is now part of Exel Logistics USA. In 1980, Ackerman sold the company and joined the management consulting division of Coopers & Lybrand. Later, he formed the Ackerman Company, a management advisory service. You can reach Ken at ken@warehousingforum.com.